Nifty chart: a midweek technical update (Oct 31, 2018)

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FIIs were net sellers of equity on all three trading days this week. Their total net selling was worth Rs 40.2 Billion. DIIs were net buyers on all three days. Their total net buying was worth Rs 50.5 Billion, as per provisional figures.

Traditional bellwethers of rural consumption – two-wheeler and tractor sales – have moderated to 5% YoY in Q3 from 16-25% in Q2. Higher fuel prices are also starting to hurt urban demand – September witnessed a 3.6% YoY contraction in passenger vehicle sales. 

Core sector (coal, crude oil, natural gas, refinery, fertiliser, steel, cement, electricity) growth slowed down to a 4 months low of 4.3% in Sep ’18 against 4.7% in Sep ’17.

The daily bar chart pattern of Nifty touched an intra-day low of 10005 on Fri. Oct 26 – its lowest level in 7 months – but all three technical indicators touched slightly higher lows. The positive divergences triggered a sharp counter-trend rally that is facing resistance from the falling 20 day EMA.

The 50 day EMA is on the verge of crossing below the 200 day EMA. The ‘death cross’ will technically confirm a bear market. From its Aug 28 top of 11760, the index has corrected almost 15% by touching last Friday’s low of 10005. A 20% correction is another technical confirmation of a bear market.

Daily technical indicators are turning bullish. MACD has crossed above its signal line inside oversold zone. RSI is rising towards its 50% level. Slow stochastic has emerged from its oversold zone, and is rising towards its 50% level. 

Some more near-term upside is possible. Use the rally to get rid of under-performers in your portfolios. Expect bears to start selling at any time. 

Nifty’s TTM P/E has moved up to 25.0, which is much higher than its long-term average. The breadth indicator NSE TRIN (not shown) is moving down in neutral zone, suggesting some consolidation.

Oil’s price is rising again. Rupee depreciated against the US Dollar today. Tata Motors declared disappointing numbers. Liquidity problems of NBFCs may get worse before they get better. Government’s public spat with RBI could have been handled better. The sordid CBI saga continues.

The stock market may take more time to find a proper bottom. The 10000 level is likely to get breached sooner than later.

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